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The interconnectedness of financial inclusion and bank profitability in rising economic powers: evidence from heterogeneous panel analysis

Yanqi Wang (Chengdu Neusoft University, Chengdu, China)
Muhammad Ali (UCSI University, Kuala Lumpur, Malaysia)
Asadullah Khaskheli (School of Management, Hainan University, Haikou, China)
Komal Akram Khan (Department of Business Administration, IQRA University, Karachi, Pakistan)
Chin-Hong Puah (Universiti Malaysia Sarawak, Kota Samarahan, Malaysia)

International Journal of Social Economics

ISSN: 0306-8293

Article publication date: 22 December 2022

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Abstract

Purpose

The objective is to assess the relationship between financial inclusion and bank profitability in emerging economies, i.e. “Bangladesh, Egypt, Indonesia, Mexico, Nigeria, Pakistan, Philippines, and Vietnam”.

Design/methodology/approach

The second-generation econometrics of panel data has been applied to examine the cross-section independence and control the heterogeneity between cross sections. Additionally, the authors employ the following tests for the analysis: “the unit root test, Westerlund's (2007) bootstrap cointegration, Pedroni cointegration, fully modified ordinary least square (FMOLS), and heterogeneous panel causality techniques”. The annual data consist of the period from 2000 to 2019.

Findings

The findings reveal that financial inclusion fosters bank profitability. Therefore, easier access to financial services and products will maximize banks' profitability. Additionally, the association between financial inclusion and bank profitability is unidirectional.

Originality/value

This research is a first attempt to bring a novel contribution to the subject of emerging economies by investigating the association between financial inclusion and bank profitability. Another unique addition to the literature is the use of a novel financial inclusion index. At last, a panel cointegration technique, FMOLS and heterogeneous panel non-causality tests are taken into consideration for the in-depth analysis.

Keywords

Acknowledgements

Funding: This work was supported by the Talent Development Bureau of Hainan Provincial Committee of CPC Grant numbers: RZ2100007211, Science Research Foundation of Hainan University (kyqd(sk)2022043).

Citation

Wang, Y., Ali, M., Khaskheli, A., Khan, K.A. and Puah, C.-H. (2022), "The interconnectedness of financial inclusion and bank profitability in rising economic powers: evidence from heterogeneous panel analysis", International Journal of Social Economics, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJSE-05-2022-0364

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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